How to Get High Returns on Your Hidden Assets

The summer is over and it is the perfect time to take a fresh look at all of your assets, bring in new perspectives, and get the resources you need to improve your business now.  This is the time to focus on your most important, highest return projects.  Don't wait until you clean up all your other loose ends.  Stay out of the trap of working on your lowest priority projects before getting to your highest priority projects.

This newsletter is designed to give you some tangible and valuable ideas on how to break out of this trap, focus and move ahead on your high payback projects today.

During our 20+ years of consulting with many small, medium and large businesses we have been able to identify and take advantage of many significant opportunities to help CEO's bring their major projects to fruition.  We are often the turbo-charger to get more out of all of your assets to help you realize your goals.  For example, many times we find that our clients have unrecognized and underutilized assets that they already have paid for and we help them to increase their returns significantly, as follows:

• Fully utilizing your employees' knowledge:  the employees frequently know more about the business, on a collective basis, than the CEO and are a tremendous untapped source of valuable information.  But it is extremely difficult for a CEO to find out what the employees are really thinking or to get past barriers built up over the years.  By  bringing in a consultant to team with employees, the CEO is telling the employees that: he/she respects their expertise, is serious about wanting their input, there are new opportunities for employee advancement and visibility (by providing new ideas) and that the employees can speak confidentially, if desired, for the benefit of the company and themselves.  Tremendous value can be generated in many areas because:

1) Employees will provide their knowledge on issues that go beyond their current role.  They frequently have a storehouse of untapped information from having many face-to-face/first-hand meetings with your customers and vendors.  During these meetings and discussions, they get valuable feedback on product pricing, quality, delivery timing, product features, packaging and potential add-ons.

2) Employers working in teams can take some of the burden of innovation and implementation off of the CEO.  They will pull together and commit to achieving success instead of pulling in different directions.    

3) Employees don't like to use a suggestion box.  They want someone to discuss  their ideas with them to try to implement them in a practical manner.  With a demonstration from the CEO that each idea will be taken seriously, they will often come forward with great ideas for potential innovations, cost reductions, new efficiencies, decreases in "shrinkage", better usage of inventory and methods of collecting receivables.  

• Breaking through your managerial constraints: your company now may be limited more by the lack of middle management resources than a lack of cash, but this constraint often can be broken quickly. CEO's frequently are afraid to give much more responsibility and authority to their management team.  On the other hand, with the help of an experienced consultant, these managers could succeed more easily and free-up more management time.  They will be able to take on more work and help you complete your high-return special projects.  This also would cause the rest of the business to be managed much more effectively.  Without this boost, however, it will continue to be very difficult to get more out of your existing management team.  

• Increasing your return on professional expertise: Your company probably already has paid for at least four outside advisers (your banker, accountant, attorney and insurance broker) to go up the learning curve on the intricacies of your business.  After working on your company's investments, business plans, financial projections, acquisitions, divestitures, real estate, financial statements, tax returns, audits, employee disputes, benefit plans, collections, etc., these professionals are a tremendous storehouse of knowledge and ideas about potential business improvements.  With a small amount of guidance from an experienced management consultant experienced in working with other professionals, a CEO could use these professionals judiciously but much more effectively, rather than try to keep them at bay.  This could significantly improve your return on your investment in these professionals.  Your already have paid them to go up the learning curve--these professionals are often-overlooked assets.

Paradoxically, CEO's sometimes try not to involve these professionals in their business in an effort to reduce cost.  This is the equivalent of buying a large, expensive and flexible piece of equipment for one application and then purposely trying to never use it again.   

• Strengthening knowledge of your competition:  Salesmen, engineers and others in your company have a substantial body of knowledge about competitors' product features, pricing and upcoming new developments.  They also  have many contacts outside the company through which they could get highly valuable additional information.  If you seek out this intelligence and communicate it across departmental boundaries as an integral part of your business planning process, your management will be much better informed and your investments will generate much greater returns.

• Tapping your customer and vendor relationships:  CEO's frequently miss opportunities to gain assistance from two of their most important stakeholder groups, their customers and vendors.  This is because CEO's jump to the conclusion that customers and vendors will abandon them in a heartbeat at the first hint of trouble.  The reality is that this is not the case--customers and vendors also have developed a strong reliance on you because you, in turn, are one of their stakeholders too.    

Vendors know that many other customers, particularly in this economy, also are having great difficulty and they know that it would be hard for them to replace you.  They also may have tailored their company to meet your needs and it might take a long time before they can replace you and collect from their new customers.   

Your customers also have come to rely on you and trust your processes and quality. Their personnel may have built strong relationships with your employees and they may not want to change.  

Momentum is on your side with both your customers and vendors.  They generally want to help you.  For example, they can slow their collections of receivables from your company and can speed up payments of payables to your company, etc.  This additional credit may not be available to you anywhere else. But, you must communicate with your customers and vendors properly and build their confidence and trust.  If they think that you are taking advantage of them they will run the other direction as fast as they can.  

• Freeing up wasted resources in your underutilized buildings and equipment:  Buildings and equipment often are much larger and more sophisticated than needed now because they were sized and priced based on your needs before the economic downturn.  They are likely to remain too large and more expensive than needed for years.  This represents your sorely needed cash that is trapped in these assets.  Through effective planning and negotiation, you often can eliminate this cause of waste and free up valuable resources.

Taming the OPEB Beast

Taming the OPEB Beast

Originally posted by Charles Chieppo on 8/8/12

In "California's Neglected Promise," author Adam Tatum estimates that the besieged Golden State is facing more than $62 billion in unfunded liabilities for "other post-employment benefits" (OPEB), which mostly consist of health-care costs for retired public workers.

California's OPEB burden is just a small part of the picture. In 2004, the Governmental Accounting Standards Board (GASB) announced that beginning in 2008 cities and states would be required to calculate and make public their OPEB liabilities. Now, one estimate puts unfunded state and local OPEB liabilities at more than $2 trillion, while a survey of 126 state and local pension plans (representing 85 percent of public-pension assets) found unfunded pension liabilities of roughly $700 billion — and that was two years ago.

While many of us would like to change the way public pensions work, those systems do deduct money from current employee salaries to fund at least a portion of future costs. OPEB expenses, on the other hand, are generally funded on a pay-as-you-go basis from operating budgets.

NY state officials eye automatic control boards | Reuters

NY state officials eye automatic control boards | Reuters
By Joan Gralla

The latest discussion of control boards in New York follows a report last week by DiNapoli that noted eight municipalities were so close to hitting the maximum level of property tax allowed by the state that they were at risk of losing state aid.

The concepts that policy makers now are analyzing would sidestep the political process by devising a list of fiscal indicators, according to the source, who requested anonymity. If a municipality was in the danger zone on a minimum number of them, an advisory board might be created, or the localities' finances might be handed over to a control board.

Tests might include whether the fund balance was in deficit, whether reserves had been exhausted, or whether the municipality had exceeded the maximum property tax level.
Some policy makers are concerned that automatically creating a control board to run a localities' finances would give the state too much power, the source said.

China PMI Falls, Points To Need for Stimulus - WSJ.com

HSBC Preliminary China PMI Fell in June - WSJ.com

By WILLIAM KAZER

BEIJING—A preliminary gauge of China's manufacturing activity showed more weakness in June, which appeared to strengthen the case for more stimulus measures to spur growth.
The HSBC initial, or "flash," measure of manufacturing also foreshadowed weakness in the months ahead as its barometer of new manufacturing orders, particularly export orders, showed further declines amid a lingering global economic slowdown.

China has already turned to an array of measures to boost growth, speeding up approvals on big projects, offering tax breaks and extending subsidies to promote consumer spending. A big unanswered question is whether the plethora of actions in the past month or so will be sufficient to boost growth during the second half of the year. If so, it could help strengthen global demand at a time when Europe is in recession and the U.S. is growing slowly.


Meanwhile, HSBC pointed to less than robust signs on the domestic economic front as well.
It said there was no meaningful improvement in domestic demand in June, with a rise in inventories of finished goods. Prices were also suggesting a potential for deflation, rather than inflation, due to weak demand.

All Hail the Generalist - Vikram Mansharamani - Harvard Business Review

All Hail the Generalist - Vikram Mansharamani - Harvard Business Review

HBR Blog Network

All Hail the Generalist

by Vikram Mansharamani  |  10:53 AM June 4, 2012

• Comments (183)
•        

We have become a society of specialists. Business thinkers point to "domain expertise" as an enduring source of advantage in today's competitive environment. The logic is straightforward: learn more about your function, acquire "expert" status, and you'll go further in your career.

But what if this approach is no longer valid? Corporations around the world have come to value expertise, and in so doing, have created a collection of individuals studying bark. There are many who have deeply studied its nooks, grooves, coloration, and texture. Few have developed the understanding that the bark is merely the outermost layer of a tree. Fewer still understand the tree is embedded in a forest....

For various reasons, though, the specialist era is waning. The future may belong to the generalist. Why's that? To begin, our highly interconnected and global economy means that seemingly unrelated developments can affect each other. Consider the Miami condo market, which has rebounded quite nicely since 2008 on the back of strong demand from Latin American buyers. But perhaps a slowdown in China, which can take away the "bid" for certain industrial commodities, might adversely affect many of the Latin American extraction-based companies, countries, and economies. How many real estate professionals in Miami are closely watching Chinese economic developments?

The Rise of the Supertemp - Harvard Business Review

The Rise of the Supertemp - Harvard Business Review
 by Jody Greenstone Miller and Matt Miller

Trevisani is a Wharton MBA and GE alum who now manages high-powered projects for Fortune 500 companies and advises executives on operational issues, change management, and potential mergers. He does all these assignments on a temporary basis, working as an independent contractor.
 
Let’s call Trevisani a supertemp. He and others like him belong to the “free agent nation” popularized a decade ago by the author and workplace guru Daniel Pink, but they inhabit its most rarefied precincts. Supertemps are top managers and professionals—from lawyers to CFOs to consultants—who’ve been trained at top schools and companies and choose to pursue project-based careers independent of any major firm. They’re increasingly trusted by corporations to do mission-critical work that in the past would have been done by permanent employees or established outside firms. New intermediaries have sprung up to create a market for such marquee talent. Supertemps are growing in number, and we think they’re on the verge of changing how business works.

The Reality-averse Illinois Government Is On Route To A Probable Plunge Into Insolvency - Investors.com

The Reality-averse Illinois Government Is On Route To A Probable Plunge Into Insolvency - Investors.com

For Illinois, The Bills Come Due As Reality Closes In

By GEORGE F. WILL Posted 04/25/2012 07:09 PM ET

Illinois was more heavily taxed than its five contiguous states (Indiana, Kentucky, Missouri, Iowa, Wisconsin) even before January 2011, when Quinn got a lame duck Legislature (its successor has fewer Democrats) to raise corporate taxes 30% (from 7.3% to 9.5%), giving Illinois one of the highest state corporate taxes, and the fourth-highest combination of national and local corporate taxation in the industrialized world.

Since 2009, Quinn has spent more than $500 million in corporate welfare to bribe companies not to flee the tax environment he has created.

Quinn raised personal income taxes 67% (from 3% to 5%), adding about $1,040 to the tax burden of a family of four earning $60,000. Illinois' unemployment rate increased faster than any other state's in 2011.

Its pension system is the nation's most underfunded, and the state has floated bond issues to finance pension contributions — borrowing money that someday must be repaid, to replace what should have been pension money it spent on immediate gratifications.  [Please click on the link above to see the entire article.]

Evidence Counts--Evaluating State Tax Incentives for Jobs and Growth by The Pew Center on the States, April 2012

015_12_RI Tax Incentives Report_web.pdf (application/pdf Object)

Conclusion:

Every year, states invest billions of
taxpayer dollars in tax incentives
designed to promote economic
development, but few know whether
they are getting a strong return on their
investment. Some states do not carefully
measure the economic impact of their
incentives; others do not examine them
at all. Some have conducted rigorous
evaluations of individual tax incentives
and others have systems for regularly
reviewing all major tax incentives—
but no state has put the two together.
As a result, when lawmakers consider
whether to offer or continue such
incentives, how much to spend, and who
should get them, they often are relying
on incomplete, conflicting, or unreliable
information.
Closing this knowledge gap should be a
top priority for policy makers, especially
as states continue their efforts to emerge
from the Great Recession. The good news
is that a number are striving to do so,
creating a blueprint for others to follow.

Public Pensions Under Stress : Shining Light on a Dark Corner, Federal Reserve Bank of Cleveland, April 13, 2012

Public Pensions Under Stress :: :: <img src="/Forefront/images/forefront_w.jpg" alt="Forefront" /><br />Spring 2012 :: 04.13.2012 :: Federal Reserve Bank of Cleveland

Public Finances: Shining Light on a Dark Corner

The financial crisis has made it all too clear that regulators failed to see into the dark corners of the financial system. With that in mind, the Federal Reserve Banks of Cleveland and Atlanta have formed a Financial Monitoring Team to study pension funds and municipal finance with an eye toward implications for the wider economy and financial system. What concerns should we have? In this article and other articles from this spring issue of Forefront, we explain where risks could be building and how reforms might help forestall their impact on the broader economy and financial system.

The Widely Ranging Estimates of Pension Underfunding

Just how underfunded are America’s public pension plans? It depends who you ask.
In the language of economics, a pension plan’s promised benefits are liabilities. They will have to be paid for someday with funds from the asset side of the fund’s balance sheet. These future liabilities should be “discounted” so that they are expressed in present-value terms. That way, you can compare the present value of the pension obligations to the current level of plan assets—essentially, a way to measure whether today’s funds on hand will be sufficient to pay for all those retiree benefits when they come due in the future. Often this comparison is expressed as the ratio of the present value of assets over the present value of obligations.
Which method to use in discounting future liabilities—that’s the crux of the issue. Public pension plans follow Government Accounting Standards Board (GASB) guidelines. This allows those plans to use the expected return on their portfolio for deter­mining the present value of their promised payments.
Following GASB guidelines, public pension funds are allowed to discount their future pension obligations by their expected rate of return, which has been in the neighborhood of 8 percent—approximately the average return of their portfolio over the past 30 years.
According to that formula, the nation’s largest 126 public pensions have liabilities with a present value (meaning they were discounted at their assumed rate) in 2010 of $3.5 trillion. The amount of assets they held was $2.7 trillion in 2010, leaving a shortfall of $800 billion.
Some economists, however, have come up with a $4 trillion shortfall. They have pointed out that for most state and local plans, promised pension benefits are protected by constitutional, statutory, or common law guarantees. (See related article, “Navigating the Legal Landscape for Public Pension Reform.”) By definition, this ought to make them riskless obligations to the pensioners. Thus, the appropriate valuation methodology should discount promised benefits using the risk-free interest rate, usually calculated as the yield on long-term U.S. Treasuries.
This method, argued cogently by Jeffrey Brown and David Wilcox in “Discounting State and Local Pension Liabilities” (2009), has the virtue of being supported by both economic and legal principles. It also produces substantially higher estimates of the present value of pension liabilities. Given the currently low yields on Treasury bonds, this approach implies a present value of accrued obligations as high as $6.7 trillion, leaving an unfunded liability of $4 trillion.
—John Carlson

 

Detroit: What Else Besides Cutting Heads
By Fred P. Leeb

This is the fifth in a series of articles that we are publishing to give our clients, friends and acquaintances examples of how we think differently and utilize our insights and experiences for more creative turnaround solutions. We have applied this type of thinking to develop the most effective turnaround strategies for businesses, governments and nonprofits.

We understand that drastic cuts in Detroit's personnel costs are needed now to buy time and regain financial solvency.  This article, however, discusses how creative solutions could be used to implement some of the more important and far-reaching structural changes that will be required.  These solutions probably would not require additional drastic personnel cuts and may even result in justifiable additions to headcount. These ideas are very applicable to the financial crises facing Detroit and other local governmental units today (on a smaller scale).  In fact, our hands-on experience as the EFM in Pontiac, a microcosm of Detroit, proved that huge tangible and measurable improvements (e.g., two years of surplus in a row after many years of deficits and an upgrade in the city's bond rating when many other cities in better shape were being downgraded) could be accomplished with very few headcount reductions. 

Detroit in the Eye of the Storm

 

The time is right for Detroit to lead the way and be the laboratory for the rest of the country.  Both national political parties are all about jobs, jobs, jobs.  For example, President Obama, in his State of the Union speech on January 24, 2012, said, “Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that’s built to last -– an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.  Now, this blueprint begins with American manufacturing….  And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.…  Join me in a national commitment to train 2 million Americans with skills that will lead directly to a job….   In the next few weeks, I will sign an executive order clearing away the red tape that slows down too many construction projects.” 

If the proper mix of solutions work in Detroit, there will be a recipe for success that will help to guide other major cities with problems very similar to ours.  Let’s start by noting and understanding some of the actions that other cities already have taken to be successful.  We believe they could be used right now to help Detroit pull itself up by its bootstraps.  Cities all over the world have been facing the same problems—let’s try to learn from their ideas and achievements.

  

 Develop a long-term strategic plan and then pull together.  

Atlantic City assessed its strengths and weaknesses and decided to transform itself into a full-scale entertainment resort.  “That transformation, that vision, is emerging in full bloom.  You can see it this summer.  You can feel the energy all over the city.  It’s really a matter of the type of transformation that Las Vegas scripted over the last five years….  Everyone is excited and understands we’re in it together, and need to work as a team.  That’s a positive thing.  And from what I understand, that’s a new thing for this city.”


Fiat decreased its employment in Turin,the capital of the Italian auto industry, from 140,000 in the early 1970’s to 40,000 in the early 1990’s.  The population declined by almost 30% in 25 years.  In 1993, a new mayor developed a detailed plan with 84 actions for development which were to be completed by 2011.  “It used its own funds, plus money from national, regional, and provincial governments and private companies, to create a range of institutions--business incubators, foundations, research laboratories, venture-capital funds, and technology parks--that would promote its information-technology and green-energy industries….  Turin’s plan worked. By 2006, it posted its lowest levels of unemployment ever and its highest levels of economic activity in half a century. The city reinvented itself as a center for design, not just of cars, but also for aerospace, cinematography, and textiles.” 

Incentivize and encourage the business community to work together with local governments.  

      
 Detroit already has made a good start in this area but probably could progress much more quickly and easily from this type of more coordinated approach.  For example, Oklahoma City developed a transformational strategic plan and then used sales-tax initiatives and tax increment financing to upgrade the downtown and surrounding neighborhoods.  “Today Oklahoma City boasts $400 million in private investment, an NBA franchise and triple-A baseball and hockey teams, and a downtown entertainment district full of clubs, restaurants, condos and offices—all connected by a man-made canal with water taxis.”  Detroit's downtown already has new stadiums, top-flight sports teams, a major university and medical centers but still has a long way to go to provide better housing, schools, retail and entertainment experiences.

Tony Hsieh, CEO of Zappo’s, is rebuilding downtown Las Vegas.  He announced about a year ago that he would be moving his 1,200 employees from his headquarters in the suburbs to the former Las Vegas City Hall building in October 2013.  He plans to convert the neighborhood into “…a new live/work/play destination for Las Vegas’ emerging creative class.  This is the plan (modest it's not): $100 million will go to the purchase of land (not including the new Zappos headquarters) and building acquisition. An additional $100 million will go to residential development including the building of high-rise apartments. Fifty million dollars will go to tech startups Hsieh plans to recruit to the area with seed investments of $100,000 or so apiece. Another $50 million will go toward drawing local small businesses like bakeries, yoga studios, restaurants, coffee shops and other requisite creative-class amenities. And because Hsieh wants people to move here and that requires having decent education for their children, another $50 million will go toward education and the building of -- what else? -- a school system.”

Collect better data, conduct better analyses of that data and make more timely decisions.  

      “For example, Santa Cruz, CA launched an experiment in 2010 using large sets of data and a sophisticated algorithm to forecast when and where crimes were most likely to take place.  The city then began to deploy police officers preemptively to stop them before they occurred.  Does it work?  According to ABC News, property crime dropped 27 percent.”

NYC.gov provides “My NeighborhoodStatistics” with a tremendous amount of information over a wide range of data elements for each of the last five years for each area of the community.  This data would be extremely helpful in managerial decision-making.  For example, under the category of Health, Education and Human Services, the number of deaths are detailed by each major cause such as drug abuse, infant mortality, and lead poisoning.  There also are detailed trend statistics on restaurants requiring reinspection, people with health insurance, people getting cash assistance, substantiated child abuse, children in public schools who have had required immunizations, average daily student attendance, and students meeting or exceeding educational standards.  Under the category of Infrastructure, Administrative and Community Services, there are statistics on acceptably clean sidewalks and streets, air complaints, recycling tons per day, emergency complaints, potholes, and cleanliness of parks and playgrounds.  Under the category of Public Safety and Legal Affairs, there are statistics on fire fatalities, medical emergencies, fires, response times, burglaries, domestic violence, hate crimes and major felonies. 

Identify federally funded megaprojects that will prepare the city for future new investment and create large numbers of both skilled and unskilled jobs that last for years, enabling other investments to grow around them.   

      For example, Aiken, South Carolina received $1.6 billion in stimulus money to hire thousands of workers to decommission old nuclear reactors, install pumps in liquid waste tanks and ship out barrels of solid waste.  “Workers from out of town filled up nearly all of the area’s apartments, hotels and restaurants.  The county’s employment dropped to 8.5% from 10.2% in a matter of months.”

Utilize the global economy as an advantage.   

      Mayor Greg Branch of Saginaw helped to promote the sale of Nexteer Automotive, Saginaw’s biggest remaining industrial employer, to an investment arm of the City of Beijing.  The Chinese company bought the auto-parts maker from General Motors for about $450 million in 2010.  “Today few people in town are wringing their hands about the Chinese.  Inside a 59-year-old factory at Nexteer’s sprawling complex, contractors are ripping out antiquated machine lines and installing new equipment….  The company… has hired more than 100 engineers in Saginaw last year and is looking for 80 more this year….  Chinese delegations are scouring the Midwest for more automotive deals. ”

Encourage platforms for regional cooperation to promote greater efficiency and better service.  

      Oakland County already is providing services to cities and towns in Oakland County and is setting a great example for other cities and counties that could do the same.  Another local government setting the pace for others is Charlotte, North Carolina which developed a Business Support Services unit to provide “information technology, procurement, fleet, and public safety communications services not only to the city but also to Mecklenberg County, smaller rural cities and towns and state and federal agencies throughout the area.” 
  
Conclusion

      In our prior article, we made the point that Detroit must take advantage of being the nation’s poster child for major cities that need revitalization and new jobs.  The purpose of this would be to use our prominent position to get the huge amount of attention and resources that we will need to get the job done.  We know that even if large short-term cost cuts are implemented quickly, they will not create long-term structural changes or bring in large amounts of additional revenue to enable the city to thrive once again.  Detroit needs a huge amount of new investment and at least tens (or more likely, hundreds) of thousands of new people and businesses who have the means to pay taxes. 

This is the time for Detroit to think far beyond the very limited resources of just the city or even the state. Detroit needs to develop a plan for structural change that is likely to easily cost billions of dollars over at least a 10-20 year period.  Because of the huge amount of resources required, we must recognize that it is likely that one of the major contributors to this process will have to be the federal government, working in concert with private enterprise. We must organize to achieve that goal and there is no better time than now to do so. We must develop a sound plan and convince key decision-makers that it will be a “no-brainer” to generate very high returns on this huge investment.

Atlantic City's future looking bright after week of positive news - pressofAtlanticCity.com: Atlantic City | Pleasantville | Brigantine

Atlantic City's future looking bright after week of positive news - pressofAtlanticCity.com: Atlantic City | Pleasantville | Brigantine

Maybe we can learn something from Atlantic City's efforts and success in implementing a long term plan. Please see excerpts from the article below:

While casino win figures released Friday were not positive, Atlantic City’s overall economy is on the brink of a turnaround likely to result in an investment stampede, predicted Israel Posner, executive director of Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at the Richard Stockton College of New Jersey.

“It’s the idea that we’ve been discussing for many years, that Atlantic City is transforming into a full-scale entertainment resort,” Posner said. “That transformation, that vision, is emerging in full bloom. You can see it this summer. You can feel the energy all over the city.

Posner also said that investors who have been shunning the city for the past few years now will be tempted to take a second look. He cautioned that they could lose out if they wait too long.

“I think that what could happen very quickly is that investors will be tripping over each other,” he said. “If you’re late, the opportunities are not there. The early participants that are drawn by the excitement have the most to gain because they are coming in during the threshold of the transformation. If you wait, the risk will be lower, but the reward will be lower, too.”

The Atlantic City Tourism District Master Plan, approved by the CRDA Board Feb. 1, advised that Atlantic City diversify offerings and perhaps partner with other towns on artistic, cultural and other nongaming initiatives. The marketing strategies behind the events themselves matter, too, particularly with social media, the 300-page document stated.

“Everyone is excited and understands we’re in it together, and need to work as a team,” Palmieri said.“That’s a positive thing. And from what I understand, that’s a new thing for this city.”

How the Stimulus Fell Short - NYTimes.com

How the Stimulus Fell Short - NYTimes.com

By MICHAEL GRABELL

Published: February 11, 2012

"... The stimulus — a historic package of tax cuts, safety-net spending, infrastructure projects and green-energy investments — certainly did a lot of good. As the economists Alan S. Blinder and Mark Zandi have noted, it’s one of the key reasons the unemployment rate isn’t in double digits now.

But the stimulus ultimately failed to bring about a strong, sustainable recovery. Money was spread far and wide rather than dedicated to programs with the most bang for the buck. “Shovel-ready” projects, those that would put people to work right away, took too long to break ground. Investments in worthwhile long-term projects, on the other hand, were often rushed to meet arbitrary deadlines, and the resulting shoddy outcomes tarnished the projects’ image...."

****************************************************

Fred Leeb: I find it ironic that after spending $840 billion we now may be concerned about whether these programs accomplished anything. I also find it interesting that it takes the NYT Sunday Review to consider the concept newsworthy that the government should generate a significant return on its investments.

I think one of the biggest failures of government is that this simple business concept (return on investment) is barely an afterthought. It is a tragedy that the US government collected and spent almost a trillion tax dollars, generated by millions of people working very efficiently and very hard to provide, without a clear idea of the projected benefits.

People need to ask what it means in the first place for the government to create jobs. There is a big difference between jobs for government employees and jobs that are created due to a nurturing environment for the private sector. For example, some of this money could have been spent on improving government decision-making, developing multiple-year growth plans, consolidating and rationalizing government entities, making government more efficient, providing venture capital, jobs training, adding funding for community colleges and public schools, etc. Programs like cash for clunkers did bring forward car sales, causing lower car sales immediately thereafter. Temporary jobs repaving roads were just that, temporary jobs. We must make the government much more accountable before the dollars are spent.

Commentary: Detroit faces worse fate than an EM | The Detroit News | detroitnews.com

Commentary: Detroit faces worse fate than an EM | The Detroit News | detroitnews.com

The article from February 10, 2012 by John E. Mogk, a law professor at Wayne State University, states, "... municipal bankruptcy under Chapter 9 of the Federal Bankruptcy Act, which could be more damaging to the city and the state and take much longer to complete.

Seeking bankruptcy relief would downgrade the city's credit rating, reduce its ability to borrow funds, and drive up the city's interest rates. The credit standing of other municipalities in Michigan and the state will also be affected. Bankruptcy requires substantial additional management responsibilities, leaving staffers less time to actually govern.
Perhaps the most damaging aspect of bankruptcy is that it will place a stigma on the city, causing new businesses to avoid locating in Detroit."
*********************************************************

Fred Leeb: My own question is, how do we know that this conventional wisdom is true? The business world lived in fear of the bankruptcy stigma but this has changed over the last 35 years and bankruptcy is now virtually just another tool in the toolbox to enable lasting structural change. Are GM's borrowing rates higher or lower now than prior to their bankruptcy? In addition, I believe there have been a number of studies showing that publicly traded stocks rise after there is an announcement of a major cost reduction program. This is because the action is an indicator that the management has finally recognized the depth of the problem and is willing to do something constructive rather than just cover it up.

Everybody already knows that Detroit is in terrible financial shape. It will remain that way until people believe that the city's leadership is willing to bite the bullet and implement a realistic multiple-year turnaround plan. As far as the city's bond rating goes, the only reason it is able to sell bonds at all now is because they are backed by other entities such as the state. This has only enabled the problem to fester and get worse. If people knew that other entities would not stand behind the city's bonds, they probably could not be sold at all, even now, before a bankruptcy has been filed. The only people we are kidding about Detroit is ourselves.

Fred Leeb: Detroit Must Take Advantage of Being the Nation's Poster Child

Fred Leeb: Detroit Must Take Advantage of Being the Nation's Poster Child

Fundamental Structural Changes Needed -- No More Band-Aids
Yes, Detroit must make huge reductions in expense, operate more efficiently, work cooperatively with its neighboring communities, sell off assets and borrow additional amounts wisely, but all of these actions are mainly for the short run and are likely to be inadequate. They will be necessary, however, to buy the additional time needed for new plans to be designed and implemented that will enable fundamental structural change. Detroit's problems are too deep to be resolved by using just the standard turnaround techniques. Detroit needs a huge amount of new investment and at least tens (more likely, hundreds) of thousands of new people and businesses who can pay taxes. They will not be attracted to the city by the wind down of services due to necessary cost cuts in public safety, roads, schools and other fundamental departmental areas. They must have something that is clear, tangible and positive to look forward to; they will be attracted by a long-term plan for success.

Detroit: In the Eye of the Storm

Detroit Must Take Advantage of Being the Poster Child and Utilize All of its Resources
In order to obtain the huge amount of resources necessary for a credible plan to implement fundamental structural changes, Detroit must take full advantage of being the national poster child for major cities that need revitalization and new jobs. National news organizations like the Washington Post, Bloomberg, the Wall Street Journal and the New York Times already are following Detroit's story very carefully. People in Illinois, California, New York and many other states have a spotlight on Detroit because Detroit was hit first and more severely. Leaders of many other big cities know that their problems are very similar to Detroit's and that they are not far behind in the need to fix their own problems. The rest of the U.S. is looking to Detroit for ideas and examples of how to overcome its tremendous financial problems because they know they will eventually need to do the same thing.

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Call us now at 248-683-5295 to discuss your turnaround issues and our potential practical solutions based on our long track record of success. 

Our discussions will be held in complete confidence; our first meeting will be complimentary and without further obligation.  Don't delay and allow opportunities to slip away.

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Guest commentary: Detroit needs a long-term economic growth plan | Detroit Free Press | freep.com

Guest commentary: Detroit needs a long-term economic growth plan | Detroit Free Press | freep.com

This article by Professor John E. Mogk discusses the long-term vision that Detroit needs, not just a focus on short-term cost cutting that will only buy time, make city employees poorer and not stop the city's downward spiral.

An excerpt from the article:

"Only economic growth that provides jobs, lifts the median income of residents and expands private investment will reverse the city's fall. There is an urgent need for a long-term economic growth plan for Detroit to build on any short-term fix. Otherwise, budget cutting ultimately solves nothing; it simply seals the city's fate.

Balancing the budget will be painful, but it is the city's easiest challenge. Elected leaders, an emergency manager or a bankruptcy court will cut Detroit's workforce, reduce compensation, sell municipal assets, privatize services and raise fees or taxes. Residents will see services reduced and costs increased.

Then what? Then the real challenges begin."

Guidance from the Wisdom of Others
In these challenging times where there are many opportunities for lasting change, we thought it might be a good idea to remember and learn from what others have said and done in similar circumstances.  We hope that you enjoy our selection of quotes.

1. Charles Dickens, A Tale of Two Cities (1859)
   It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period...."
2. Edith Lovejoy Pierce:
   We will open the book. Its pages are blank. We are going to put words on them ourselves. The book is called Opportunity and its first chapter is New Year's Day.

3. Unknown Author:
   The sign on the door of opportunity reads PUSH.

4. Dale Carnegie:
   The successful man will profit from his mistakes and try again in a different way.

5. Brian Tracy:
   Your greatest resource is your time.

6. Margaret Mead:
   Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.

7. Josh Billings:
   Time is like money, the less we have of it to spare the further we make it go.

8. Nido Qubein:
   Nothing can add more power to your life than concentrating all your energies on a limited set of targets.

9. Harry Firestone:
   You get the best out of others when you give the best of yourself.

10. Sam Ewig:
    Hard work spotlights the character of people: some turn up their sleeves, some turn up their noses, and some don't turn up at all.

11. Henry Ford:
    Paying attention to simple little things that most men neglect makes a few men rich.

12. Peter Drucker:
    There is nothing so useless as doing efficiently that which should not be done at all.

13. African Proverb:
    Smooth seas do not make skillful sailors.

14. Jimmy Johnson:
    Treat a person as he is, and he will remain as he is. Treat him as he could be, and he will become what he should be.

15. Jonathon Swift:
    Vision is the art of seeing things invisible to others.

16. Stephen R. Covey:
    Management works in the system; leadership works on the system.

17. Mary Case:
    No pressure, no diamonds.

18. Lord Macaulay:
    The highest proof of virtue is to possess boundless power without abusing it.

Being the Emergency Financial Manager in Pontiac for 15 months was a very challenging but highly successful experience.  Our team, including our Managing Director, Geni Giannotti, and the city's staff proved that, even in an extremely difficult political environment,  we could quickly generate two years of surplus after many years of deficits.  It consumed all of our time but it gave us an opportunity to make a major positive impact on a large community.  We clearly demonstrated that our proven turnaround techniques will work even though Pontiac, as is the case with many other cities and schools, has suffered through years of rapidly declining revenues, had already cut to the bone, and was demoralized.

For more information on Fred Leeb & Associates, LLC (click here).  Fred Leeb also won the Turnaround of the Year Award from the Turnaround Management Association in 2008. 

Fred Leeb will be discussing turnaround issues for the PNC Roundtable show with Ric DeVore, the Regional President, Detroit and Southeast Michigan of PNC Bank and Paul W. Smith on WJR radio (760 AM).  The show will  be available beginning on Tuesday, October 26th by going to the WJR website and clicking on PNC Roundtable in the podcast dropdown menu (or click here for the PNC Roundtable).  Please listen in.  

Highlights of the Pontiac Turnaround Success Pulling Yourself Up by the Bootstraps By Fred Leeb

While I was in Pontiac for 15 months, we teamed up with the city's staff to generate over $115 million in benefits to the city and thereby eliminated the need for mass layoffs during my tenure.     I believe that I am the only turnaround consultant in the state who can say that he has run a medium-sized city successfully, improving financial results from a long history of deficits to two years of surplus.  Though many problems remain, because there were too many to be rectified in such a short time period, we did succeed in beginning to get the city back on track.  This turnaround success was built on 20 years of turnaround experience in my own firm and in two of the best firms in the country, AlixPartners and PriceWaterhouseCoopers. We were able to achieve many tangible improvements, such as: 1) Negotiating lower cost union agreements (e.g., finalized new contracts with six city unions--including AFSCME, Teamsters, Police, Fire to obtain their contributions of 20% towards their health care costs and reduced the insurance cost even further for new hires) 2) Upgrading Pontiac's bond ratings from CCC to B and moving the financial outlook from "negative watch" to "stable". 3) Generating a surplus (e.g., achieved a surplus of $1.4 million in FY09 and $3.0 million in the nine months ended March 31, 2010) for the first time in many years in one of the State's most difficult financial environments; obtained a clean audit opinion in FY09. 4) Identifying and dealing with assets that have generated inadequate returns and stopping the bleeding (e.g., sold the Silverdome saving $2.4 million/year in maintenance cost and sold other assets where the deals had not progressed in many months or even years) 5) Hiring professional outside managers to be responsible for critical operations in order to reduce risk, eliminate future cash bleeding and improve service to the community (e.g., outsourced the management of the Pontiac wastewater and drinking water facilities, the golf course and the outdoor event venues) 6) Reopening major contracts with outside vendors to reduce ongoing costs (e.g., garbage collection and major equipment leases) 7) Collaborating with other organizations to share cost and operate more efficiently (e.g., obtaining interns to help in critical functions, working with the Michigan Prisoner Release Initiative to supply free labor to maintain parks and vacant lots) 8) Negotiating sophisticated new agreements to attract new business (e.g., successfully finalized a tax-free Renaissance Zone for the new Michigan Motion Picture studios) Please call us now at 248-514-3262 to begin discussions on how we may able to help your organization.

The Oakland Press (theoaklandpress.com), Serving Oakland County

News > Local News

Leeb suggests ideas for new Pontiac manager

Friday, June 25, 2010
By DAVE PHILLIPS
Of The Oakland Press

“Success is highly unlikely if there continues to be personality cults in Pontiac.”

That’s how Fred Leeb ended a letter written to the man set to take his place as Pontiac’s emergency financial manager next month. Leeb read the letter — listing 50 accomplishments under his 15-month term as EFM — during Thursday night’s Pontiac City Council meeting.

Leeb said the city generated a $1.4 million surplus last year with a “very favorable audit” and also has developed a $3 million surplus during the first nine months of this fiscal year, “despite a revenue decline of almost $5 million this year as compared to last year.”

He also touched on the controversial sale of the Pontiac Silverdome for $583,000.

The city obtained numerous court opinions “that were completely in the city’s favor regarding the Silverdome sale and management’s conduct,” he said.

Leeb said negotiations with unions have reduced health care costs by 20 percent, and furlough days have been eliminated for most employees.

Listed as another accomplishment was a pending security increase at City Hall.

“We’re finalizing new proposals to provide basic security, meaning cameras, mirrors and panic buttons at City Hall, which I think is absolutely necessary,” he said.

The city’s financial future will be difficult, Leeb said.

“Pontiac must deal with a number of years of upcoming declines in revenue,” he said. “The city will run out of cash if nothing is done.”

There is a $4 million gap in the city’s general fund beginning in fiscal year 2011, which starts July 1, Leeb said. If nothing else is done, anywhere from 35 to 60 city employees must be laid off, he said.

“This would represent a huge cut — 17 to 30 percent of the general fund’s head count,” Leeb said. “That would lead to an extremely difficult situation, and it’s the last thing I would want to do.”

Leeb offered six suggestions to cover the difference and avoid layoffs, including putting a measure on the fall ballot for a millage increase for the Pontiac Police Department, settling an ongoing lawsuit, growing downtown as an educational campus for nurses and research and development, and regionalizing the city’s wastewater treatment facilities.

The other two options are where “the City Council, mayor and the new emergency financial manager need to focus right now,” Leeb said. Both involve paying retiree medical benefits to about 1,000 retired city employees — more than double the number of active city employees.

One of those options is to withdraw $1.5 million from the general voluntary employee beneficiary association (VEBA) fund, and possibly a larger amount next year.

“In my opinion, the principal should be withdrawn and used during these difficult years for paying retiree medical benefits,” Leeb said.

The other suggestion is to withdraw money from the general employee retiring fund — which Leeb guessed has excess funding of $50 million to $100 million. That money should also be used to pay retiree medical benefits, Leeb said.

An attorney has stated that the withdrawal would be illegal, but Leeb said he has been advised that it is legal “under certain circumstances.”

“This is only likely to be accomplished if people put aside their infighting and work together as a team,” Leeb said. “If one side digs in its heels, it is likely to result in a massive, unnecessary layoff of city employees. The city should take advantage of a fresh start with a new emergency financial manager to enable this necessary withdrawal to be successful.”

The City Council did not pass a budget for the next fiscal year Thursday, preferring to wait for Michael Stampfler to take over as emergency financial manager next month.

“We have to at least let the new person coming in know what’s going on,” Council President Lee Jones said. “To ensure the safety of our city, this is what we have to do.

“We need to have another meeting in the next week or so to make the best decision for the city and its employees,” Jones said. “We’re transitioning from one emergency financial manager to another emergency financial manager, and we don’t know how that transition is gonna be.”

In other business, the council approved a three-year lease of the Howard Dell Center to Playmakers University, approved maintaining the city’s current 17 mill tax rate for the next fiscal year, and approved the lease of the Kennett Road Landfill property to Carlton Taylor, who plans to operate a concrete crushing and wood chipping business there.

Contact staff writer Dave Phillips at 248-745-4631 or dave.phillips@oakpress.com. Follow him on Twitter @dave_phillips1.

URL: http://www.theoaklandpress.com/articles/2010/06/25/news/local_news/doc4c2567d8d697d087310446.prt

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